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Revenues at Enquest (LSE, ENQ) jumped by more than half in 2011 as the realised oil price and production both rose. Output in the current year is not set to show growth but the target for 2014 remains 40,000 barrels of equivalent per day (boepd) which is a two-thirds increase on 2011. The UK budget was positive for North Sea producers and Enquest has targeted strong growth.
Enquest describes itself as the “largest UK independent producer in the UK North Sea”. The recent March budget created tax incentives for the North Sea and the resilience of the oil price has seen the share price rebound. The group will shortly formally approve its plans for a fourth hub in the North Sea.
Growth plans are supported by aggressive investment with US$1bn pencilled in for the current year – this compares to US$361m in 2011. Acquisitions are also a focus with a recent one being a stake in the Kraken discovery in the East Shetland basin.
Production at Enquest increased by 12.5% in 2011 to 23,698 boepd as all of the group’s three producing North Sea hubs saw progress. However, the area which saw guidance lowered during the year was weaker than expected output at the Don South West fields.
The key area for growth is the Alma/Galia development which will form a fourth North Sea hub for the group.
Alma/Galia was sanctioned by Enquest at the end of November and has a capex of around US$850m – US$500m will be spent this year. First oil at Alma/Galia is expected in Q4 2013 with the project being front-end loaded.
So far Enquest has been adept at replacing production with new reserves. The ratio in 2011 was 419% and currently the reserve life is 13.4 years. This was driven by a boost from Alma/Galia.
Despite capex of US$278m in 2011 the group’s cash and equivalents jumped to US$379m at the end of the year. This was on a strong US$656m cash flow from operations during the year up from US$268m in 2010. The company had no long-term debt at the end of the year.
To finance growth a new US$900m credit facility has been taken out with US$525m committed by lenders and the remainder at their discretion. As such the finance expense in 2012 is expected to be in the range of US$20m-US$21m.
Turning to the bottom line financials and the 52% revenue boost on higher production and higher oil prices meant a 130% increase in operating profits to US$390m.
Earnings per share at Enquest weren’t high in 2011 at 4.89p but robust cashflow at 52p a share and prospects for growth look strong. By buying mature assets Enquest has a low risk-profile versus exploration companies. However, this is mitigated by shorter field lives and less upside. But the group is looking to grow and has a very strong cashflow position.
This article was produced by Senior Research Analyst, Andrew Latto
Thu, 1st Jan - * AIM-listed Leni Gas & Oil (LGO) has published an update on its joint venture agreement in Trinidad with Vancouver-based oil and gas production company Maxim Resources, relating to a proposed transaction whereby Maxim and LGO would work together to pursue oilfield development opportunities in the Republic of Trinidad and Tobago.